Dot obsidian folders

Hey there, I’m just wondering, are the .obsidian files supposed to be in the toplevel directory, and is there any problem with having multiple of them?

For example, by mistake, I created a vault called say, TestVault in a folder called TestVault. So the dir structure is


Now, if i open the child testvault, as a vault, I have two .obsidian folders, one at each level, could this potentially cause issues?

Also, just out of curiosity, what happens if i delete one? Will it just be recreated?